Co-working business model of renting out office space has been growing exponentially and has proven to be a next technology revolution, in particular, considering the success of WeWork, which was recently valued at $20 billion.
There are a large number of co-working businesses floating around globally, but most of them are barely surviving and fighting for profit.
In spite of them using repetitive tag of "creating start-up ecosystem, networking, mentoring or startup community......and bla, bla, bla", the hard reality is that these co-working businesses are hardly profitable.
When the size of co-working is relative small or not centrally located, then it becomes even harder to make it profitable.
Most co-working businesses have failed and many are in the queue to get failed. Now, the question is why this business model is not profitable? What are necessary measures to make a co-working business profitable?
In India, there are hundred such businesses running in big cities like Bangalore, Delhi, Noida, Mumbai, and Kolkata.
However, it would be great to know if they are really doing so well in terms of profit or surviving with investor money. Are they creating illusion of high valuation or are they actually making profit from their businesses? If they are not profitable, then what measures have they taken or are planning to take to make their business profitable?
In this competitive space, quite a few start-ups have started thinking of an alternative business model to compete against existing co-work businesses in India. Our analysis and experience suggest following key measures that need to be taken care to make a profitable co-working business:
- Size Matter
Size of workspace is extremely crucial when measured against the occupancy rate. If the size of workspace is small (1-3K Sq. ft), it's extremely difficult to cover all the cost (mortgage/rent, operation cost, and personnel cost etc.).
However, if the size is relatively large (more than 5K Sq. ft.) and occupancy rate is high, there is high chance of profitability. By increasing number of desks rented from the range of 70-80 seats (in small co-work space) to a few hundreds (in large co-work space), we can increase our income and surpass our operational cost. Note I am not talking about co-working businesses, which are running call-centers, but rather technology co-working businesses which are running during usual office hours.
- Location is King
Occupancy rate of a rented desk is largely dependent upon location and other facilities available in co-working space. If workspace is not centrally located, it's hard to attract large number of tenants and in that case even large size will not improve the business income. To succeed, we have to have over 80% occupancy rate and that is only possible if we can offer a great location and great services. Bad location of workspace can kill even great service available; and then it will be very difficult to make it profitable.
- Competitive Price Model
Considering Indian market being cost driven, its crucial to keep your rental price per desk competitive. Rental price for a desk should be competitive to your competitors in local market. If the price is too high then people will not go there even at first place. However if the price is too low then people will start question your offering and devalue your offering. Remember cheap and best can't exist together in real world. Therefore if you offer great service at your workspace then ask high price but always competitive to competitive price. The price model need to be negotiable with increased number of seats.
- Minimise Operational Cost
Keeping checks on your overall operational cost is another important factor in making workspace profitable. If there are too many managers, organizers, maintenance guys and other personnel to run the workspace then operational cost can go very high. Similarly, offering great service is great but not putting checks on expenses related with great service is not a good financial choice.
- Upscaling Business
Workspace business can't be grown larger than a certain size at one place and therefore it is crucial to upscale your business by setting up different units in different locations in same city or in different cities. High measure should be taken when setting up a new workspace in a new city where you are not aware with chance of success. It's great to rent an office space in the first place, rather than purchase it. If the workspace unit in that particular city does not succeed to make profit, then it will create high financial burden. Therefore, start with relatively small (but not too small) workspace and rented workspace, when you are upscaling your business in a new city.